The need for an ISDS Moratorium - Not at all fair!

I had blogged about the demands of a moratorium on ISDS during the Covid pandemic here and here.The critics of the ISDS and Investment Agreements argued that the pandemic was the right time to have a temporary moratorium so that the regulatory space of States to address the challenges of the crisis is not mitigated, amongst other things by a regulatory chill.

Prabhash Ranjan disagrees. Arguing in the Opinio Juris here, he is of the view that this proposal assumes many things - that States always act in good faith, States will always lose an ISDS claim and that the aspect of regulatory chill is over-rated.

A fundamental flaw with the proposal to have an immediate moratorium on ISDS claims is that it postulates that States are innocuous actors who shall not abuse their regulatory powers to the detriment of foreign investors. This assumption flies in the face of the growing literature on how the Covid-19 pandemic is being used to propel authoritarianism with would-be autocrats using it as an excuse to amass greater power and control. While some governments have handled the pandemic by acting within the constraints of the law, some have acted like autocratic opportunists by spurring narrow nationalism, creating a surveillance State as Yuval Noah Harari warns us. In a situation such as this, the apprehension that populist and nationalist governments shall misuse their regulatory powers to impair the legally protected rights of foreign investors under international law cannot be ruled out.

Firmly opposing the call for any moratorium, alleging that this could lead to authoritarian tendencies and the junking of the rule of law by States, he avers that ISDS and IIAs, with modifications is an essential feature of the rule of law regime.

Notwithstanding all the imperfections, the IIL regime and the ISDS mechanism are part of the legal infrastructure of the global economy. They act as useful restraints on the capricious use of State power vis-à-vis foreign investors and serve an important purpose of holding States accountable under international law for their international investment relations, thus enforcing the international rule of law principles. This role of the IIL regime and the ISDS mechanism is very important in the times of Covid-19 when we see creeping authoritarianism in many countries.    

 Well, the die hard critics and supporters both use the rule of law to augment their positions. While the critics argue that ISDS is a fundamental departure from the rule of law wherein foreign investors are favoured vis a vis domestic businesses as well as arbitral appointments are against the principle of the independence of the judiciary, the proponents of ISDS argue that the system protects the international rule of law by checking arbitrary, non-transparent and malafide exercise of State power.

No easy answers to this conundrum with a range of alternatives from outright rejection to incremental reform being equally strong narratives in the debate.

Let the debate continue.